Russia: Analysis From Washington -- Oil Prices And Political Possibilities

April 04, 2000 00:00 GMT

By Paul Goble

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Russia: Analysis From Washington -- Oil Prices And Political Possibilities

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Washington, 3 April 2000 (RFE/RL) -- Recent increases in the price of oil are giving Moscow ever greater opportunities to adopt policies at home and project power abroad without having to take into consideration the attitudes of the international community.

These increases by themselves set the stage for greater independence of action by the government of acting President Vladimir Putin. But even more, they appear likely to power a new kind of geopolitical competition between Russia, which earns much of its hard currency through petroleum exports, and Western countries, whose economies depend on importing gas and oil.

Both Russian and Western commentators have already noted that Moscow has been able to finance its war in Chechnya because of rising oil prices. And they have pointed out that the revenues the Russian government has received from oil exports have allowed the Putin regime to talk about a future without dependence on international loans.

But last week, there were three additional developments that suggest the oil price surge is likely to have an even greater impact on Russian policy in the future than it has up to now.

First, Russia's deputy fuel and energy minister Vladimir Stanev announced on Friday that testing of the section of the Baku-Novorossiisk oil pipeline bypassing Chechnya will be over by the middle of May. He said that 230 kilometers of this pipeline have been tested successfully so far and that another 90 kilometers will be tested over the next six weeks.

Once the pipeline is fully tested and certified, it will be able to carry 18 million tons of oil a year. And that in turn will certainly affect Chechnya's ability to earn the money it needs for reconstruction. But more important, this new route will seriously reduce the attractiveness of alternate oil routes out of the Caspian basin, including the US-supported Baku-Ceyhan pipeline.

At a minimum, Western governments are likely to find it harder to raise funds for the latter route, now that a Russian pipeline is clearly available. But even more, the opening of this Russian route will change the geopolitics of the Caucasus and Central Asia, undercutting American and European influence and increasing Moscow's leverage in both regions.

Second, and also on Friday, the Russian authorities began construction of a new oil terminal on the Gulf of Finland near St. Petersburg. When completed, this port will be Russia's second largest, capable of exporting up to 12 million tons of oil to the West. But perhaps even more important, the opening of this port will allow Russian firms to bypass the Baltic states.

Until the price of oil rose, the Russian authorities frequently had talked about starting this project but had not been able to find the funds to construct it. Now, with oil revenues at a new high, Moscow has the opportunity to build something which Russian officials and analysts have suggested will allow them to save money and increase their influence in the Baltic region.

The new port is likely to allow Moscow greater flexibility in its dealing with the Baltic states by allowing Russian firms to send oil through some or none of the three at Moscow's discretion. That will simultaneously reduce the revenues each of the Baltic countries now receive from transit trade and increase their uncertainty about the future, both of which the Russian authorities are likely to exploit to expand their influence there.

And third, according to a report from Baghdad earlier last week, the Russian government lined up with those in the Organization of Petroleum Exporting Countries to oppose the increase in production the United States and other Western countries had sought to send oil prices in a downward direction.

Russia did not prevail this time. It is not a member of OPEC, and American influence proved to be too strong. But by clearly supporting those within the cartel who oppose increasing production, Russia has positioned itself not only to cause more trouble for the Western economies in the future but also to cement its friendship with anti-Western oil-exporting countries.

That too points to a new geopolitical competition based almost entirely on an increase in the price of oil. Obviously, if prices fall significantly, Moscow will find its ability to move in all three of these directions reduced. But even if they do, Russia's willingness to exploit the politics of oil prices is likely to remain a major new component of the post-post-Cold War international system.